NSE Indicators Close Green, Ahead Positioning For Q1 Earnings, Data

The stock market at the midweek continued it volatile wave to consolidate the previous day’s reversal by following through to close higher on stronger investors sentiments and low valuation ahead of Q1 earnings reporting season that is expected to kick-off next week. The composite Nigerian Stock Exchange (NSE) All-Share index opened the day slightly weak before moving up from the lows, to rally high in the mid-morning to afternoon and close the day at 40,846.24 basis points.

The market has become renown for inexplicable surprises, following two months of correction for up to about 60% of the time. And considering that it has been slow to value the recent impressive numbers due to low liquidity in the market and persistent profit booking, it is therefore safe to say investors are already factoring in the uncertainties of the oncoming general elections long before now. The Q1 expected earnings season, continued decline in money market interest rates and dropping inflation figure for March may set up positive surprises for this season.
From a valuation perspective, stocks are already cheap apart from few that are still over-priced. The forward Price/Earnings on the NSE has come down to just 14.2, which tends to drive the price investors and traders are willing to pay for a Naira of earnings well above long-term averages.

Having this in mind, let’s take a look at what valuations look like on banking stocks that had released their full year 2017 results before now: Zenith Bank is at 8x the 2018 earnings estimate; United Bank for Africa, is 10x; Guaranty Trust Bank, 14x; and Stanbic IBTC, 18x.
If we look back at the pre-2017 rally valuations on these banks, few traded at a discount. On the earnings side, the business models of these banks will determine their performance this year as money market interest continues to look down. This is ahead of a possible rate cut by the Central Bank of Nigeria (CBN) in the nearest future and overregulation in the industry. This is likely to affect their net interest margins, as monetary stimulus in the form of intervention had supported the relatively stable exchange rate that is driving economic activity.
Market technicals on Wednesday was strong despite the relatively low volume traded on a strong buying pressure, positive market breadth, improved sentiment on a volume index of 0.92 of the day’s total transaction. As liquidity in the market remains weak as institutional inflow to the market is low.

Index and Market Cap

All-Share index gained 347.20 points, close at 40.846.24 basis points after opening at 40,499.04bp, representing a 0.86% growth on a low volume that was higher than the previous day’s. Similarly, market capitalisation for the day rose by N125.42bn to close at N14.75tr from an opening value of N14.63tr, also representing 0.86% value gain to reduce the losing position of investors.

The sustained upturn in the market was due to price appreciation of highly capitalized stocks, like Double One, Unilever, Stanbic IBTC, NB, Guinness and Dangote Cement. This impacted positively on the NSE’s Year-to-Date returns, as it strengthened to 6.81%, just as market capitalisation gains for the period stood at N1.14tr, representing 8.41% above the year’s opening value.

Mixed Sectoral Indices

Sectoral performance for the day was mixed as the NSE Banking and NSE Insurance sector were lower, due to sell off in Union Bank of Nigeria, United Bank for Africa, NEM Insurance and Continental Reinsurance, while NSE Industrial and Consumer goods were driven by Dangote Cement, Nigerian Breweries, Honeywell, and Guinness.
Market breadth for the day was positive as advancers outweighed decliners in the ratio of 27:19 to continue it reversal move
Market activities were mixed as volume dropped by 5.42% to 367.27m shares from the previous day’s 388.28m units, while value rise by 26.6% to N5.33bn from the previous day value of N4.21bn.
Transaction volume was boosted by financial services stocks like Zenith Bank, Skye Bank, Access Baank, GTBnk and UBA, which witnessed increased trading to top the activity chart.

Learn Africa and Unity Bank were the best performers for the day, topping the advancers’ table after gaining 9.43% and 8.7% respectively to close at N1.16 and N1.00 each. This was due to market forces and sentiment.
On the flip side, C&I Leasing and Redstar Express were the worst performing, after losing 9.40% and 5% to close at N1.35 and N5.70 respectively on profit taking.

Market Outlook
We expect the uptrend to continue on the strength of low valuation amidst ongoing volatility and portfolio realignments, ahead of Q1 scorecards and economic data. Even so, value investors continue to position for the short and long-term on the strength of company fundamentals.
However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially during this season when dividend payment is ongoing and Q1 results are expected in the market arena.
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.

It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.

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